THE ROLE OF MICROFINANCE BANKS IN THE ALLEVIATION OF POVERTY IN NIGERIA (A Case Study of Oha Microfinance Bank Ogui Road Branch, Enugu State)
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THE ROLE OF MICROFINANCE
BANKS IN THE ALLEVIATION OF POVERTY IN NIGERIA (A Case Study of Oha
Microfinance Bank Ogui Road Branch, Enugu State)
CHAPTER ONE
INTRODUCTION
1.1: BACKGROND OF
THE STUDY
A robust economic growth cannot be achieved without putting
in place well focused programme to reduce poverty through empowering the people
by increasing their access to factors of production.
The latent capacity of the poor for entrepreneurship would be
significantly enhanced through the provision of microfinance services to enable
them engage in economic activities and be more self-reliant, increase
employment opportunities, enhance household income and create wealth.
Micro-financing has existed for years before the introduction of conventional
banking in Nigeria and the later part of nineteenth century. (Ekot, 2008)
The traditional Nigerian society has a system of group
savings and assistance to one another. The practice was that a group of people
who had needs for some form of capital or lump sum to execute a particular
project which they could not raise adequate savings on their own, usually come
together to form a savings group. The group may be named after the leader who
is usually the initiator of the venture. The traditional microfinance
institutions provide
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access to credit for the rural and urban low-income earners.
These are mainly the informal self-help groups such as Isusu,women association
like one obtainable during popular August meetings,
Umu-ada progressive women association. Other providers of
microfinance services include savings collectors and co-operatives.
(CBN brief, 2005)
The unwillingness and inability of the formal financial
institutions is to provide financial services to the urban and rural poor,
coupled with unsustainability of government sponsored development financial
schemes, contributed to the increase in number of private sector led micro
finance in Nigeria. Thus, before the emergence of microfinance institutions,
informal microfinance activities flourished all over the country. The Central
Bank of
Nigeria (CBN) as at end of December 2009 gave an approval to
840 microfinance banks to begin operation in the country. (CBN briefs,
2008-2009)
Microfinance banking is about providing financial services to
the economically active poor and low income household, who are traditionally
not served by the conventional financial institutions.
These services include credit savings, micro-leasing,
micro-insurance and payment transfers to enable them engage in income
generating activities. (Asemota, 2002)
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However, the microfinance policy launched on 15th December
2005 defined the framework for the delivery of these financial services on a
sustainable basis to the micro, small and medium enterprises (MSMES) through
privately owned microfinance banks.
The Non-governmental Organizations or Microfinance
institutions
(NGO-MFIS) are also expected to transform to microfinance
banks. (Dinye, 2006)
Existing Community banks and NGO-MFIS that want to convert
and transform respectively to a microfinance bank but do not have the required
minimum capital base can increase the share capital by capital injection,
merger and acquisition. These would not only enhance monetary stability but
also expand the financial infrastructural development of the country to meet
the national financial system and provide stimulus for growth and development
(Benson, 1985). It would also harmonize operating standards
and provide a strategic platform for the evolution of microfinance institution,
promote appropriate regulation, supervision and adoption of best practices. The
establishment of microfinance banks has become imperative to serve the
following purposes:
Improve, diversified and create a dependable financial
service to the active poor, low-income earners in a timely and competitive manner
that would enable them to undertake and develop long-
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term, sustainable entrepreneurial activities, mobilize
savings for intermediation, create employment opportunities and increase the
productivity of active poor and income earners in the country. Thus increasing
their individual household income and capacity standard of living, enhance
organized and systematic but focused participation of the poor in the
social-economic development and resource allocation process. It will also
provide veritable avenues for the administration of the micro credit programme
of government and high net worth individual on non-resource basis. This policy
ensures that state government shall delegate an amount of not less than 10% of
their annual budgets for on-lending activities of microfinance banks in favour
of their residents and render payment services such as salaries, pension for
various tiers of government (Luck,2011).
1.2: STATEMENT OF
PROBLEM
Nigeria consists of different classes of individuals, who are
either enterprising or industrial low class that account for over half of the
population who do not have access to formal banking services. Savings have
continued to grow at a very low rate particularly in the rural areas of
Nigeria. One of the problems brought to bear is the inability of rural dwellers
to channel their savings into banks. Most rural people keep their resources
under their pillows. This
14
method of keeping savings is risky because it might be
stolen, lost or wasted in extravagant spending. Moreover, returns which would
have accrued to the depositors in form of interest are forfeited.
The contribution of government to alleviate poverty through
the establishment of microfinance banks appears a little progress. Inspite of
the establishment of microfinance banks, it was observed that most people are
not able to obtain loan. This is attributed to a number of challenges such as
the high level of interest rate, lack of collaterals required by the commercial
banks before loans can be granted which necessitated the establishment of
Microfinance to address these economic imbalances. If the banking industry
continue to meet the demands of Nigerians especially the rural poor, this shows
that there is a gap which need to be filled and this can be done through the
contribution of government by establishing more microfinance banks in Nigeria
to help in alleviation of poverty.
Another problem observed is the inability of prospective
borrowers of most microfinance banks to repay their loans as at when due. This
may be attributed to high rate of poverty in the country. The high rate of
poverty is noticeable in such area such as unemployment, high rate of
inflation, non-payment of salaries, mismanagement of loan granted to rural
dwellers, infrastructural
15
deficiencies, such as power, road network, etc. and all kinds
of political, economic and bureaucratic bottlenecks.. Also Nigerian economy
consists of individuals who feed from hand to mouth. The loans when granted are
channeled to other areas such as feeding, payment of bills, school fees,
hospital bills and others instead of using it for the intended business
purpose.
1.3: OBJECTIVES OF
THE STUDY
The broad objective of this study is to find out the role of
microfinance banks as a palliative in the alleviation of poverty in
Nigeria. They are as follows:
1. To find
out the rate at which rural dwellers deposit their money in microfinance banks
rather than putting it under pillows.
2. To find
the contribution of government in alleviation of poverty through the
establishment of microfinance banks.
3. To find
out the rate at which rural dwellers are able to repay their loans.
1.4: RESEARCH
HYPOTHESIS
The following hypotheses have been developed around which
this
research would revolve:
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H0: The rate at
which rural dwellers deposit money in microfinance bank is low than they keep
under their pillows.
H1: The rate at
which rural dwellers deposit money in microfinance banks is high than they keep
under their pillows.
H0: The government
has not assisted microfinance meet the needs of rural dwellers and communities.
H1: The government
has assisted microfinance meet the needs of rural dwellers and communities
H0: Microfinance borrowers react negatively towards loan
repayment. H1: Microfinance borrowers react positively towards loan repayment.
1.5: RESEARCH
QUESTIONS
1. What is
the rate at which rural dwellers deposit their money in microfinance banks
rather than putting it under their pillow?
2. What is
the contribution of government in alleviation of poverty through the
establishment of microfinance banks in Nigeria?
3. Why do
most Microfinance borrowers react negatively towards loan repayment?
1.6 : SIGNIFICANCE OF
THE STUDY
This study will benefit the following groups:
a.
Government; The findings
of this study
will be useful
to
government in that it will help them to know the importance
of
17
MFI thereby knowing ways of improving the quality of their
services. The result of the study will also bring out the areas that need
improvement and make suggestions for improving on them.
b.
Owners; It will
also be useful
to those planning
to open
Microfinance banks to know the usefulness of microfinance
banks as catalyst or stimulus for poverty alleviation in rural settings as way
of developing rural banking.
c. Scholars;
Students also will find it very useful in some research work on project issues
by boosting their knowledge about microfinance banks in the alleviation of
poverty. Those who need referencing material materials on role of micro
financing in alleviating poverty will find this study useful.
1.7 : SCOPE OF THE
STUDY
The research on the role of microfinance banks in poverty
alleviation which requires a thorough analysis of the Oha
Microfinance Bank, Ogui Road branch in Enugu State.
1.8: LIMITATIONS OF
THE STUDY
In the course of this research work, the researcher
encountered different problems such as:
1. Inadequate
finance: As a student, financial difficulties limit the
researcher from studying the activities of all banks and also
limit
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the volume of data collection; e.g. the funds available will
not be
enough in transporting and facts findings.
2. Time
constraint: There was no time to conduct an enormous research.
3. Inability
to get access to some Microfinance banks to get more information about their
records and some other useful information about the work also limit the research
data collections.
4.
Environmental constraint: The environment in which the research work was
written restricted the researcher from going out and so the researcher was
faced with the problems of how to reach out the field of research and coordinate
activities as planned.
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